2018 (2) TMI 1586

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....ing the deduction of Rs. 2,35,68,262/-. The AO completed the assessment disallowing the deduction claimed by the assessee u/s 80P of IT Act holding that the assessee is a consumer cooperative society which runs it for the benefit of its members and allowed the deduction of 80P to the extent of Rs. 1,00,000/- and brought to tax the balance amount. During the assessment proceedings, the assessee explained that the assessee's income is not taxable as the assessee is a mutual cooperative society and all members and their shares are identifiable. The assessee purchases electricity from the APEPDCL and distributes to its members. The assessee submitted before the AO that as per the mutuality concept, the assessee's income is exempt on the concept of no one can trade with himself. The assessee further submitted that the income from mutual association does not fall within the ambit of section 4 of IT Act and also relied on the decision of Hon'ble Supreme Court and the High Courts as under : (1) CIT Vs Merchant Navy Club (1974) 96 ITR 261 (AP) (2) CIT Vs.Royal Western India Turf Club Ltd. (1953) 24 ITR 551(SC) (3) CIT Vs. Shree Jari Merchants Association (1977)106....

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....professional charges and Rs. 3,11,724/- u/s 40(a)(ia) in respect of advertisement expenses. 4. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) dismissed the appeal of the assessee holding that the bye laws have been amended and registered with the Dy.Registrar of Cooperative Society on 18.10.2014 which means that the income for the assessment year 2010-11 held to be of consumer cooperative society which required to be taxed. 5. Aggrieved by the order of the CIT(A), the assessee is in appeal before this Tribunal. Appearing for the assessee, the Ld.AR argued that the assessee is a mutual cooperative society engaged in serving the rural people and farmers to enable them to have qualitative power at reasonable price. This is one of the three societies in the state of AP established long back as on experimental basis by the Govt. of AP and constituted as society. The assessee admits the consumers as members of the society before electricity connection is given to him and supply electricity. The assessee purchases the electricity from APEPDCL as per the fixed tariff by Govt. of AP and collects the electricity charges from consumer a....

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....during the appellate stage and placed before the Ld.CIT(A), before finalizing the appeal. The Ld.AR submitted that neither the society is dissolved nor the assets are distributed amongst the members and the bye laws were duly amended so as to enable the society to distribute the surplus on dissolution to the members before the amendment to bye law, hence argued that the case law relied up on by the AO in the case of Shree Jari Merchants Association has no application. The Ld.AR further submitted that Hon'ble jurisdiction High Court in the case of CIT Vs. West Godavari District Rice Millers Association held that in spite of surplus would not go to members but would be based on to some other association with similar objects, the income of the assessee would be immune from tax on the principle of mutuality and argued that assessee has rightly claimed the income as exempt on the principle of mutuality, hence requested to set aside the orders of the CIT(A) and allow the appeal of the asssessee. 6. On the other hand, Ld.DR supported the orders of the lower authorities . 7. We have heard both the parties and perused the material placed on record. There is no dispute that the assesse....

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....wn. The receipt in their hands is not really a profit as no man can make a profit out of himself, just as he cannot enter into a trade or business with himself. Thus, the main test of mutuality is complete with the identity of contributors with the recipients. It is well settled that the identity need not be necessarily of individuals because it is the identity of status or capacity which matters more. The individual members of an association may be different; but so long as the contributors and recipients are both holding the membership status in the association, their identity would be available to them if such a mutual concern receives any income the surplus of which goes back to the contributors of the said income. Now these are the well settled principles on the question of mutuality. But, Mr. M.S.N. Murthy, the learned counsel for the department, relied upon rule 21 of the memorandum of association which says that the surplus should be transferred to some other association having similar objects. He admits that since there is a ban on the surplus going to the members, there is no identity between the contributors and the recipients. In support of this contention, the learned ....